Spending doesn’t necessarily mean happiness

She had so much.

A two-bedroom apartment. Two cars. Enough
wedding china to serve two dozen people.

Yet Tammy Strobel wasn’t happy. Working as
a project manager with an investment management firm in Davis, California, and
making about $40,000 a year, she was, as she put it, caught in the “work-spend
treadmill.”

So one day she stepped off.

Inspired by books and blog entries about
living simply, Strobel and her husband, Logan Smith, both 31, began donating
some of their belongings to charity. As the months passed, out went stacks of
sweaters, shoes, books, pots and pans, even the television after a trial
separation during which it was relegated to a closet. Eventually, they got rid
of their cars, too. Emboldened by a website that challenges consumers to live
with just 100 personal items, Strobel winnowed down her wardrobe and toiletries
to precisely that number.

Her mother called her crazy.

Today, three years after Strobel and Smith
began downsizing, they live in Portland, Oregon, in a spare, 37-square-meter
studio with a nice-size kitchen. Smith is completing a doctorate in physiology;
Strobel happily works from home as a Web designer and freelance writer. She
owns four plates, three pairs of shoes and two pots. With Smith in his final
weeks of school, Strobel’s income of about $24,000 a year covers their bills.
They are still car-free but have bikes. One other thing they no longer have:
$30,000 of debt.

Strobel’s mother is impressed. Now the
couple have money to travel and to contribute to the education funds of nieces
and nephews. And because their debt is paid off, Strobel works fewer hours,
giving her time to be outdoors, and to volunteer, which she does about four
hours a week for a nonprofit outreach program called Living Yoga.

“The idea that you need to go bigger to be
happy is false,” she says. “I really believe that the acquisition of material
goods doesn’t bring about happiness.”

While Strobel and her husband overhauled
their spending habits before the recession, legions of other consumers have
since had to reconsider their own lifestyles, bringing a major shift in
Americans’ consumption patterns.

“We’re moving from a conspicuous
consumption – which is ‘buy without regard’ – to a calculated consumption,”
says Marshal Cohen, an analyst at the NPD Group, the retailing research and
consulting firm.

Amid weak job and housing markets, American
consumers are saving more and spending less than they have in decades, and
industry professionals expect that trend to continue. Consumers saved 6.4
percent of their after-tax income in June, according to a new government
report. Before the recession, the rate was 1 percent to 2 percent for many
years. In June, consumer spending and personal incomes were essentially flat
compared with May, suggesting that the American economy, as dependent as it is
on shoppers opening their wallets and purses, isn’t likely to rebound anytime
soon.

On the bright side, the practices that
consumers have adopted in response to the economic crisis ultimately could – as
a raft of new research suggests – make them happier. New studies of consumption
and happiness show, for instance, that people are happier when they spend money
on experiences instead of material objects, when they relish what they plan to
buy long before they buy it, and when they stop trying to outdo the Joneses.

If consumers end up sticking with their
newfound spending habits, some tactics that retailers and marketers began
deploying during the recession could become lasting business strategies. Among
those strategies are proffering merchandise that makes being at home more
entertaining and convincing consumers to feel special by giving them access to
exclusive events and more personal customer service.

While the current round of stinginess may
simply be a response to the economic downturn, some analysts say consumers may
also be permanently adjusting their spending based on what they’ve discovered
about what truly makes them happy or fulfilled.

“This actually is a topic that hasn’t been
researched very much until recently,” says Elizabeth W. Dunn, an associate
professor in the psychology department at the University of British Columbia,
who is at the forefront of research on consumption and happiness. “There’s
massive literature on income and happiness. It’s amazing how little there is on
how to spend your money.”

So just where does happiness reside for
consumers? Scholars and researchers haven’t determined whether Armani will put
a bigger smile on your face than Dolce & Gabbana. But they have found that
our types of purchases, their size and frequency, and even the timing of the
spending all affect long-term happiness.

One major finding is that spending money
for an experience – concert tickets, French lessons, sushi-rolling classes, a
hotel room in Monaco – produces longer-lasting satisfaction than spending money
on plain old stuff.

“‘It’s better to go on a vacation than buy
a new couch’ is basically the idea,” says Dunn, summing up research by two
fellow psychologists, Leaf Van Boven and Thomas Gilovich. Her own take on the
subject is in a paper she wrote with colleagues at Harvard and the University
of Virginia: “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending
It Right.” (The Journal of Consumer Psychology plans to publish it in a coming
issue.)

Thomas DeLeire, an associate professor of
public affairs, population, health and economics at the University of Wisconsin
in Madison, recently published research examining nine major categories of
consumption. He discovered that the only category to be positively related to
happiness was leisure: vacations, entertainment, sports and equipment like golf
clubs and fishing poles.

Using data from a study by the National
Institute on Aging, DeLeire compared the happiness derived from different
levels of spending to the happiness people get from being married. (Studies
have shown that marriage increases happiness.)

“A $20,000 increase in spending on leisure
was roughly equivalent to the happiness boost one gets from marriage,” he said,
adding that spending on leisure activities appeared to make people less lonely
and increased their interactions with others.

While it is unlikely that most consumers
will downsize as much as Strobel did, many have been, well, happily surprised
by the pleasures of living a little more simply. The Boston Consulting Group
said in a June report that recession anxiety had prompted a “back-to-basics
movement,” with things like home and family increasing in importance over the
last two years, while things like luxury and status have declined.

“There’s been an emotional rebirth
connected to acquiring things that’s really come out of this recession,” says
Wendy Liebmann, chief executive of WSL Strategic Retail, a marketing consulting
firm that works with manufacturers and retailers. “We hear people talking about
the desire not to lose that – that connection, the moment, the family, the
experience.”

Current research suggests that, unlike
consumption of material goods, spending on leisure and services typically
strengthens social bonds, which in turn helps amplify happiness. (Academics are
already in broad agreement that there is a strong correlation between the
quality of people’s relationships and their happiness; hence, anything that
promotes stronger social bonds has a good chance of making us feel all warm and
fuzzy.)

And the creation of complex, sophisticated
relationships is a rare thing in the world. As Dunn and her colleagues Daniel
T. Gilbert and Timothy D. Wilson point out in their forthcoming paper, only
termites, naked mole rats and certain insects like ants and bees construct
social networks as complex as those of human beings. In that elite little club,
humans are the only ones who shop.

One reason that paying for experiences
gives us longer-lasting happiness is that we can reminisce about them,
researchers say. That’s true for even the most middling of experiences. That
trip to Rome during which you waited in endless lines, broke your camera and
argued with your spouse will typically be airbrushed with “rosy recollection,”
says Sonja Lyubomirsky, a psychology professor at the University of California,
Riverside.

Lyubomirsky has a grant from the National
Institute of Mental Health to conduct research on the possibility of
permanently increasing happiness. “Trips aren’t all perfect,” she notes, “but
we remember them as perfect.”

Another reason that scholars contend that
experiences provide a bigger pop than things is that they can’t be absorbed in
one gulp – it takes more time to adapt to them and engage with them than it
does to put on a new leather jacket or turn on that shiny flat-screen TV.

“We buy a new house, we get accustomed to
it,” says Lyubomirsky, who studies what psychologists call “hedonic
adaptation,” a phenomenon in which people quickly become used to changes, great
or terrible, in order to maintain a stable level of happiness.

Over time, that means the buzz from a new
purchase is pushed toward the emotional norm.

“We stop getting pleasure from it,” she
says.

And then, of course, we buy new things.

When Ed Diener, a psychology professor at
the University of Illinois and a former president of the International Positive
Psychology Association – which promotes the study of what lets people lead
fulfilling lives – was house-hunting with his wife, they saw several homes with
features they liked.

But unlike couples who choose a house
because of its open floor plan, fancy kitchens, great light, or spacious
bedrooms, Diener arrived at his decision after considering hedonic-adaptation
research.

“One home was close to hiking trails,
making going hiking very easy,” he said in an e-mail. “Thinking about the
research, I argued that the hiking trails could be a factor contributing to our
happiness, and we should worry less about things like how pretty the kitchen
floor is or whether the sinks are fancy. We bought the home near the hiking
trail and it has been great, and we haven’t tired of this feature because we
take a walk four or five days a week.”

Scholars have discovered that one way
consumers combat hedonic adaptation is to buy many small pleasures instead of
one big one. Instead of a new Jaguar, Lyubomirsky advises, buy a massage once a
week, have lots of fresh flowers delivered and make phone calls to friends in
Europe. Instead of a two-week long vacation, take a few three-day weekends.

“We do adapt to the little things,” she
says, “but because there’s so many, it will take longer.”

Before credit cards and cell phones enabled
consumers to have almost anything they wanted at any time, the experience of
shopping was richer, says Liebmann of WSL Strategic Retail. “You saved for it,
you anticipated it,” she says.

In other words, waiting for something and
working hard to get it made it feel more valuable and more stimulating.

In fact, scholars have found that
anticipation increases happiness. Considering buying an iPad? You might want to
think about it as long as possible before taking one home. Likewise about a
Caribbean escape: You’ll get more pleasure if you book a flight in advance than
if you book it at the last minute.

Marie Driscoll, head of the retailing group
at Standard & Poor’s, says chains have to adapt to new consumer preferences
by offering better service, special events and access to designers. Analysts at
the Boston Consulting Group advise that companies offer more affordable
indulgences, like video games that provide an at-home workout for far less than
the cost of a gym membership.

With competition for consumer dollars
fiercer than it’s been in decades, retailers have had to make the shopping
experience more compelling. Cohen says automakers are offering 30-day test
drives, while clothing stores like Ann Taylor are promising free personal
shoppers. Malls are providing day care while parents shop. Even on the Web,
retailers are connecting on customers on Facebook, Twitter and Foursquare,
hoping to win their loyalty by offering discounts and invitations to special
events.

Strobel is now an advocate of simple
living, writing in her spare time about her own life choices at
Rowdykittens.com.

“Give away some of your stuff,” she
advises. “See how it feels.”

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